2019 Appropriation Bill’s elusive projections

Even before the commencement of legislative debates, Nigeria’s 2019 Appropriation Bill has sailed into unprecedented storm. The infantile rowdiness of members of the National Assembly during the president’s presentation on December 18 pales into insignificance in the face of an array of unrealistic projections dogging the budget proposal. The 2019 Appropriation Bill is primarily the casualty of the tactical and strategic fiscal and monetary blunders of its architects.

Architects of Nigeria’s budget proposals have a penchant for exaggerating the country’s sources of revenue. The 2018 Appropriation Act was predicated on an oil production quota of 2.3 million barrels per day (MBD). By the end the third quarter of the year, the average daily production figure stood at 1.9 MBD. What saved the 2018 budget in terms of realized revenue was the boom in oil price which hovered around an average of $74 per barrel, against the budget reference price of $51.

For the 2019 Appropriation Bill the same men who watched helplessly as daily production in 2018 floundered to 1.9 MBD still predicated revenue projections for 2019 on 2.3 MBD without any change in production dynamics in Nigeria’s oil fields.

The 2019 Appropriation Bill would be doing grueling battles against reference price and production quota simultaneously. The Organisation of Petroleum Exporting Countries (OPEC) has eventually hacked Nigeria’s production quota to 1.6 MBD in a desperate bid to boost prices.
Unlike in 2018 when unexpected price hikes compensated for production deficit and beefed up the nation’s revenue, no one can guarantee higher oil price in 2019 even in the face of OPEC’s cosmetic production cuts.

Donald Trump, America’s mercurial president has struck a deal with Saudi Arabia, the largest producer in the OPEC cartel for supply boost that would bring down prices. The Saudis are in a diplomatic and legal quagmire that makes it mandatory for its rulers to do sinister things to please Trump.

Jamal Khashoggi, a former insider in the Saudi royal family eventually turned against the monarchy and was harshly criticizing Crown Prince Mohammed Salman’s policies in his column in Washington Post. The prince is the de facto ruler of Saudi Arabia.

On October 2, 2018, Khashoggi went to the Saudi consulate in Istanbul, Turkey to obtain papers that would enable him marry his Turkish fiancé. He was brutally murdered in the Saudi mission.
Now even the Central Intelligence Agency (CIA), America’s spy agency believes that the crown prince ordered the murder. While America’s allies impose sanctions on Saudi Arabia for the ruthless murder, Trump has apparently used that opportunity to blackmail the Kingdom into crashing oil prices.

As Nigeria’s puerile lawmakers were heckling President Muhammadu Buhari during the presentation of the 2019 Appropriation Bill to a joint session of the National Assembly, oil price dropped to $56 even as Buhari was sounding so optimistic about his budget oil reference price of $60.

Saudi Arabia owes Trump an obligation to keep oil prices low even as other OPEC members in dire financial straits haggle for higher prices. Trump has inadvertently traded low oil price for silence over the murder of Khashoggi. The Saudis have no option than to deliver.

From all indications, the architects of Nigeria’s budget would have very few options than to effect a downward review of both the budget’s oil reference price and the production quota. The expected crash in the two indices would simply endanger the budget.

The other unrealistic projection in the 2019 Appropriation Bill is the inflation target. The architects of the budget expect to force inflation down to 9.98 per cent. As at November, inflation rate had inched up to 11.28 per cent from 11.26 in October.

The sudden hike in inflation rate after 18 consecutive months of decline was blamed on the surge in food prices. Everything in the 2019 Appropriation Bill suggests that it would be a Herculean task to take inflation to single digit in 2019.

The first factor that would only drive up prices is the fact that 2019 is an election year.

Even with the law restricting campaign spending by presidential candidates to N5 billion, politicians would unleash trillions of naira into the system during the campaigns and flood the economy with liquidity that would be chasing fewer goods and pushing up prices.

The next factor that would render the inflation target of the 2019 Appropriation Bill unrealistic is the impending upward review of Nigeria’s starving minimum wage. A new minimum wage would increase the cost of production as wage bills escalate. Employers would respond by passing part of the escalating wage bill to consumers through hikes in prices of goods and services.

That in effect would get inflation rate heading back to the higher double digit range. A new minimum wage would trigger inflation from two angles.

Even before the organized private sector start passing the higher cost of production to consumers through price hikes, transporters and retailers in Nigeria’s unwieldy informal sector would take a pound of flesh from the workers’ new pay. Retailers would hike prices in a desperate bid to catch up with the workers’ new income. Transporters would hike fares for commuters and goods haulage thus triggering fresh price hike on food items. We would need economists from Mars to keep inflation at 9.9 per cent.

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